Subscribe to Sobha Developers IPO: ASK-RJ

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The Bangalore-based Sobha Developers, SDL is open for subscription with a public issue of 88,93,332 equity shares of Rs 10 each through book building process in the price band of Rs 550 - 640 per share. 

The issue comprises a reservation of upto 8,89,300 equity shares for SDL's permanent employees and a net issue to the public of 80,04,032 equity shares. It constitutes 12.20% of the post-issue paid-up capital of the company. The issue closes on November 29.

The ASK Raymond James report on Sobha Developers IPO:

Integrated player with strong land bank

Sobha Developers, is one of the leading real estate developers with focus on residential and contractual projects. The company has completed 21 residential (2.97 mn sq ft), 75 contractual and two commercial projects spread over 11.51 million sq ft till date. It currently has land reserve of an estimated 118 million sq ft (2,747 acres) of saleable area spread across 78 locations in seven cities, which it plans to execute over 7-10 years.

SDL has 15 ongoing and 13 future residential projects in Bangalore covering 10.14 million sqft of saleable area. The company is also currently executing 23 contractual projects such as school, hospital and IT parks in six states with a contract value of Rs 53 billion. SDL has a unique backward integration model with competencies and in-house resources of architects, concrete block making plant, glazing factory, interiors and wood working factory. SDL has land arrangements for 3,373 acres, of which, large part would be added to land reserves upon successful negotiations of these arrangements with various parties.

Highlights

Strong land bank

SDL has land reserves aggregating to 2,747 acres, spread across 78 locations in seven cities across India. This land reserves represents around 118 million sq ft of developed or potential developed area. The NPV of the land reserve is approximately Rs 70-77 billion and after reducing the developers margins, its land value is around Rs 39-44 billion.

The company has piled up a reasonably large land bank aggregating to 6,120 acres, including land reserves of 2,747 acres and land arrangements of 3,373 acres (where a contractual agreement for land acquisition has been signed with certain third party entities and part payment made) as on September 2006. The cumulative saleable area that can be potentially developed from the existing land reserves and land arrangements equals to 235 million sq ft, which gives enough room for continuous growth in revenues for next 7-10 years.

Residential projects

All residential and commercial projects of SDL are located in Bangalore. Till date SDL has constructed 21 projects in Bangalore aggregating to 1,552 apartments covering 2.978 million sq ft of super built up area. SDL's residential projects would include presidential apartments, villas, row houses, super luxury apartments etc.

SDL has also constructed two commercial projects in Bangalore covering 26,865 sq ft. Going forward, SDL is developing 15 residential projects in Bangalore aggregating 4.97 million sq ft and comprising 2,682 apartments. In addition, SDL is also planning to develop 13 residential projects in Bangalore aggregating to 5.17 million sq ft comprising 3,055 apartments. Thus SDL is aggressively scaling operations, which would be executed over next 3-5 years.

Contractual projects contribute 34% to revenues

In FY06, contractual projects contributed 34% to the total revenues. Till date SDL has completed 75 projects on contractual basis covering 8.42 million sq ft of area. Infosys Technologies is the key client with 83% contribution to the revenues. SDL has constructed convention centers, software development blocks, multiplex theatres, hostel facilities, guest house etc in various states of India.

SDL has leveraged itself by diversifying into high quality contractual projects mitigating the risk of property prices. SDL is currently executing 23 contractual projects for various corporate and other entities spread across six states in India. The total contract value of these projects is around Rs 53 billion.

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Risk and concerns

Valuation